Did Employer Improperly Withhold Tips From Valet Driver?

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By Caitlin Reilly

“I'm a tipped employee. It's illegal for you to take tips given to me by customers and use them to cover your business' expenses,” said Maura, a valet attendant.

“I pay you more than the minimum wage,” said Bridget, her employer. “I don't have to let you keep tips.”

FACTS: A valet driver received compensation in the form of wages from an employer and tips from customers.

The employer kept a portion of the tips the valet attendant received. Tips were collected by the employer and redistributed to the attendants working a particular shift according to a formula set by the employer.

A portion of the tips were kept by the employer to cover business expenses, including the attendants' hourly wages.

The attendant was paid an hourly wage that exceeded the federal minimum wage set by the Fair Labor Standards Act. The employer did not use a tip credit to cover part of the driver's wage.

The valet attendant sued to recover the tips pocketed by the employer, citing a 2011 Labor Department rule on how employers may handle tips and the FLSA.

The lawsuit was dismissed by a district court. The employee appealed.

ISSUE: Was the valet attendant owed customer tips withheld by the employer?

DECISION: The employer did not owe the valet driver for the tips it withheld, the appeals court said in affirming a district court ruling. The lower court was correct to dismiss the lawsuit because the employee did not claim minimum wage or overtime violations, the appeals court said.

Under the FLSA, a worker may sue an employer if the employer violated either the law's minimum wage or overtime provisions, the court said. The valet attendant admitted to receiving a wage that exceeded the federal minimum wage and did not claim to be owed overtime.

The Labor Department would be allowed to investigate the employee's claims and enforce the FLSA, the court said.

The employee would be allowed to bring the lawsuit under applicable state labor laws, the court said ( Malivuk v. Ameripark, LLC, 2017 BL 195719, 11th Cir., 16-16310, unpublished 6/9/17 ).

POINTERS: Under the FLSA, an employer is required to pay a covered employee at least $7.25 an hour, unless the employee customarily receives tips.

An employer may pay a tipped employee $2.13 an hour and cover the difference of the cash wage and the full minimum wage with tips, called a tip credit. Under the FLSA, an employer may use the tip credit only if the employee keeps all the tips received from customers.

The FLSA does not address how employers should treat tips, if they do not use the tip credit. The employer paid the valet attendant a wage that exceeded the federal minimum wage and did not use a tip credit, the appeals court said.

In 2011, the Labor Department issued a rule on tip pooling, saying that tips were the property of employees, even if the employer used the tip credit. However, the authority of the rule was under debate in courts, the appeals court said.

The appeals court did not address the authority of the department rule in this lawsuit because even if the rule carried the weight of law, an employee would need to claim a minimum wage or overtime violation to bring a private lawsuit against an employer.

The 2011 department rule addressed tip pooling. Under the FLSA, tip pools are considered valid under the FLSA if tips are redistributed to employees who customarily receive tips. Employers who use the tip credit may not redistribute tips to employees who do not usually receive tips, such as supervisors.

The 2011 rule expanded the FLSA tip pool provisions to cover employers that paid at least the full minimum wage and did not take the tip credit.

For an agency rule, such as the 2011 rule on tips, to carry the weight of law, Congress' intent in the original statute must be ambiguous, and the agency's interpretation must be reasonable, under a Supreme Court decision ( Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., 467 U.S., 837, 1984 ).

Several districts courts ruled that the 2011 department rule did not carry the force of law because the FLSA addressed how employers should handle tips and tip credits. The intent of Congress was not unclear or ambiguous in the case of tips and the FLSA, the district courts said.

However, a 2016 appeals court decision from the Ninth Circuit contradicted the district court rulings.

The department rule addressed a gap in the FLSA, which does not offer guidance on how employers that pay the full minimum wage should treat tips, the Ninth Circuit said. Additionally, the department's interpretation of the FLSA was reasonable, the court said ( Or. Rest. & Lodging Ass'n v. Perez, 2016 BL 50460, 9th Cir., No. 13-35765, 2/23/16 ).

For more information, see the Payroll Administration Guide chapter on “FLSA Minimum Wage Rules.”

By Caitlin Reilly

To contact the reporter on this story: Caitlin Reilly in Washington at creilly@bna.com. To contact the editor responsible for this story: Michael Baer at mbaer@bna.com.

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This analysis illustrates how courts resolve pay-related disputes. The names and dialogue are fictitious.

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